by Randy Griffin, Distribution Manager
Every day it seems there is another announcement of market tightness, inventory shortages, supply chain delays, and, of course, price increases. For many, this cycle of supply constraints was predicted and expected, but the onset was earlier and the severity is worse than had been anticipated.
This situation started in 2008 when the world market entered a great recession. Prior to 2008, there was sufficient capacity and diversification in the market channels to create competition, and often excess supply, resulting in low prices as producers fought for market share. When the financial market crisis hit, producers were forced to further cut prices to maintain their market share and production efficiency. As this process played out, many producers closed older, less efficient production facilities and some producers exited the market entirely.
The market balanced over the next five years, but there was little incentive to expand capacity as neither price nor demand had recovered to previous levels. More often, available capital was used to buy competitors rather than build facilities, resulting in the explosion of the Merger and Acquisition (M&A) market. To further compound the loss of capacity, some mergers resulted in additional closures as companies attempted to drive efficiencies and extract maximum value from their M&A expenditures. Over the last several years, stagnant volumes throughout the chemical industry have continued to pressure margins. As a result, the stocks of a number of chemical companies have been downgraded.
Many expected China to fill the capacity that had been lost when US and European manufacturers streamlined, but unexpectedly, the opposite occurred. The severe pollution issues that have plagued Chinese industry received increased exposure over the last several years, and imposed controls have limited expansion.
In this time of positive GDP growth, allocating resources to rapidly increase production and fill robust demand has been a challenge. In addition, there has been a strain on the logistics supply chain, which is not expected to expand at the current market prices. The December 2017 implementation of the ELD Mandate (Electronic Logging Devices) in the trucking industry is expected to cause further shortages and delays.
It is difficult to predict when market stability will return. Suppliers and end users alike are striving to work a lean model, but reliable supply of product cannot be compromised. It is in these times when the power of distribution must fill the gap. Responsive distributors can quickly increase stock levels and position the stock near the customers.
As a private company, Lintech International does not have the same market constraints as many larger distributors which are publicly traded or owned by private equity. Lintech creates value as a reliable and responsive supply partner, enabling customers to run just-in-time models and drive production efficiencies. As always, the challenge is communication. Like any supplier, Lintech is subject to sudden and unforeseen market interruptions and shortages in a global market. However, Lintech can often provide options when issues arise. Lintech has a highly trained technical sales staff to assist customers in evaluating alternative technologies when necessary. Lintech is meeting the challenges of the “New Normal.”
“Learning and innovation go hand in hand. The arrogance of success is to think that what you did yesterday will be sufficient for tomorrow.” – William Pollard